Austrian School of Economics

What is Austrian School of Economics?

The Austrian School of Economics is also called the free market school of economics. Free markets lead to free(er) societies and personal liberty.

Many of you have never heard of the Austrian School of Economics because it is not mainstream and it is not taught in most high schools, colleges and universities.

There are now many sources (mostly available online) to learn if you have the time, energy and desire to do so.

You can find the most sources to learn, including many free e-books, video lectures, podcast, on the main Mises website. Also, regular copies of books, documentaries and audio books are available for purchase at affordable prices through the Mises website store.

Video Introduction about the Austrian School of Economics:

Here’s some more sources to learn more about the Austrian School of Economics:

The team at Wall St for Main St recommends people interested in learning the Austrian School of Economics start by reading articles on Mises.org, listen to podcasts on Mises and watch speeches on Mises Institute’s You Tube channel.

And, if people have the time, energy and desire to learn more real economics, they can start by reading the basic beginner books like Henry Hazlitt’s Economics in One Lesson, Peter Schiff’s How an Economy Grows and Why It Crashes, and the Politically Incorrect Guide to Capitalism by Robert Murphy before they start reading the longer and more difficult books on Austrian School Economics from Ludwig Von Mises, Murray Rothbard, etc.

F.A. Hayek’s Road to Serfdom is also a very good book talking about the horrific, unintended consequences of Collectivism, Socialism and Central Planning and the political and economic consequences central planning often leads to.

The Main Ideas that is Relevant in Today’s Economy

The Broken Window Fallacy: One of the most important teaching is the Broken Window Fallacy. Watch this video below before reading any further.

Keynesian economists believe that natural disasters, terror attacks, crimes and other external events are actually good for the economy because it will stimulate demand for services/goods that wouldn’t have any demand if the event didn’t occur. For example, Keynesian economist Paul Krugman said regarding 9/11,

“…Ghastly as it may seem to say this, the terror attack–like the original day of infamy, which brought an end to the Great Depression–could even do some economic good.”

While 9/11 did stimulate a demand for more security, it prevented money from being spent on other goods/services that would otherwise have been used for. After September 11, Homeland Security was created, more security and regulation was enforced in airports and the U.S. invaded Iraq and Afghanistan. The invasion alone cost the U.S. taxpayers $1.2 trillion! That money helped the military industrial complex (like Halliburton and Lockheed Martin) that were supporting the U.S. military with weapons, armors, tanks, food and clothing. However, it didn’t help the people that paid for it (the U.S. government and the taxpayers) because they were going to use that money to get what they ordinarily purchase.

A more recent example is the tsunami/earthquake disaster in Japan. The tsunami destroyed thousands of homes and now Japan must spend their money to rebuild new homes instead of using that money on something else that they wanted. The economy is Japan was in bad shape before the disaster. Now, they must print and spend more money to rebuild new homes, which they otherwise wouldn’t have to do if the disaster didn’t occur. This will make their debt situation even worse!

Money is not Credit: One of the biggest economic debate is whether the U.S. economy will suffer deflation or inflation. One of the most common argument told by deflationist like Robert Prechter is that inflation cannot occur because the money supply and credit must expand (increase) at the same time. They believe having the money supply expand while credit contract will not create inflation because they believe credit is money. They argued that since debt is very liquid (can be easily converted to money by selling the asset), it should be counted for in the money supply. The Austrian School of Economics believes that the expansion and contraction of credit is not relevant when determining the value of one unit of money.

The Austrian School argued that credit is not money because it is not universally accept as a medium of exchange. When you go to the store, you can’t pay for your goods with a 10 year treasury bill (which is a credit). The store doesn’t accept T-bills as money so it can’t be counted for in the money supply. It is true that a person can liquidate that T-bill and then pay for the goods, however this scenario can’t be applied to all form of debt. Do you think car loans and mortgages are liquid? It is not as easy to liquidate your house or car loan compared to a T-bill. The only entity that is considered money is the Federal Reserve Note, aka U.S. Dollar (that worthless piece of paper with all of the dead former U.S. President).The U.S. Dollar is very liquid because all you have to do pull money from checking account at a ATM machine.

The contraction and expansion of the money supply alone will determine if we have inflation or deflation, As of now, the Federal Reserve is printing money out of thin air and maintaining the interest rate at nearly zero, which cause the money supply to expand. Therefore, we are likely to experience inflation and not deflation.

Why is Austrian School of Economics Important?

We believe the perspective gained from learning the Austrian School of Economics and applying its unique and controversial lens to the capital markets will provide investors and traders a significant edge over others in the marketplace who are only using the mainstream economics everyone else is using.

Some of the Pro Austrian School of Economics Investing Websites to use for research about the markets include:

Top Austrian Investors to Follow (Other than us…)

Peter Schiff: Using the basic principle of Austrian Economics, Peter Schiff was one of the few investors warning of the 2008 financial crisis before it began between 2006 to 2007. He called the housing bubble and warned the public of massive wave of mortgage default that would devastate the economy. Now, he is calling for all Main Street investors to invest commodities, such as gold and silver in preparation for inflation or worse hyperinflation. Schiff is the CEO and Chief Global Strategist at Euro Pacific Capital.

Jim Rogers:He is one of the Co-Founders of the Quantum Fund (the other being George Soros). Jim Rogers is one of the most successful investors in the past 50 years. He can be found on Fox News, CNBC, Bloomberg and other financial outlets on the internet. He is known for writing “Hot Commodities” in 2004. Jim Rogers is calling for a boom in the commodities markets due to food shortages and the money printing spree led by Federal Reserve Chairman, Ben Bernanke. He is also warning Main Street to prepare for the destruction of the U.S. Dollar due to bad monetary and fiscal policies.

Jim Puplava: He is the President of Puplava Financial Services and the host of the weekly Financial Sense News Hour. Jim Puplava is known for covering the housing market extensively before the bubble collapse in 2008 and he warned his clients and audience on Financial Sense to prepare for a financial crisis as well. He has interviewed well known Austrian economist and investors such as Dr. Thomas Woods, Ron Paul, Peter Schiff, Marc Faber, Jim Rogers and other well known experts in the investment community. He is recommending Main Street investors to put their money in hard assets such as gold and silver in preparation for inflation.

 

David Morgan: He is the author ofThe Skinny on Silverand editor of The Morgan Report Newsletter. David Morgan is an advocate of owning precious metals and precious metals stocks as a hedge against the currency devaluation that is occuring around the world. He is an expert in the silver market for over a decade and he has been recommending silver due to supply/demand deficits, increasing industrial uses and purchasing power protection. David Morgan believes in Austrian Economics and the free market and he want to see this country to return to the basic principles laid out by the Founding Fathers of the Constitution.

Marc Faber: He is the editor of the Gloom, Boom, Doom Report and a member of the Barron’s Roundtable. Marc Faber warned people about the upcoming financial collapse before 2008 and he is now predicting the destruction of the U.S. Dollar and the death of the U.S. middle class due to the monetary policies of the Federal Reserve. Dr. Faber has also spoke at Mises Institute event on how the crisis happened, the dangers of bad fiscal and monetary policies on the U.S. economy and he discussed why investors should buy commodities. He also made appearances on CNBC, Bloomberg, Fox News and various investing outlets on the internet.